The impacts of corporate governance on firms’ performance: from theories and approaches to empirical findings

Abstract

Purpose This study aims to investigate the relationship between corporate governance (CG) and financial performance in the case of publicly listed companies in Vietnam for the period from 2019 to 2021. The topic is crucial in understanding how effective governance practices can influence the financial outcomes of companies. The study sheds light on the link between CG practice and firm financial performance. It also provides insights for policymakers and practitioners to improve CG practices. Design/methodology/approach Due to the potential dynamic endogeneity in CG research, this study uses the generalized system methods of moments to effectively address the endogeneity problem. Financial performance is measured by Tobin’s Q, return on equity (ROE) and return on assets (ROA). Based on organization for economic cooperation and development (OECD) standards, these indices were calculated to assess the influence of CG practices on corporate financial performance, namely, for accounting information (ROA and ROE) and market performance (Tobin’s Q and service à resglement différé (SRD) – stock price volatility) for the period 2019–2021. In addition, the study examines the relationship between changes in the CG index and changes in financial performance. Findings The study’s main objective is to determine the relationship between CG performance scores and financial performance. The study found a positive relationship between transparency disclosure and financial performance and a positive correlation between CG and company size. The COVID-19 pandemic caused a decrease in transparency and information index scores in 2021 compared to 2019 and 2020 due to delayed General Meetings of Shareholders. The study failed to find a relationship between shareholder rights index (“cg_rosh”) and board responsibility (“cg_reob”) and financial performance, concerning which the findings of this study differ from those of previous studies. Reasons are put forward for these anomalies. Originality/value Policymakers need to develop a set of criteria for assessing CG practices. They also need to promulgate specific regulations for mandatory and voluntary information disclosure and designate a competent authority to certify the transparency of company information. The study also suggests that companies should develop CG regulations and focus on regulations relating to the business culture or ethics, as well as implementing a system to ensure equal treatment among shareholders. The study found that good CG practices can positively contribute to a company’s financial performance, which is crucial for investors to evaluate the quality of CG practices for each listed company so that investment risks can be limited.

Does managerial overconfidence affect capital structure rebalancing for entrepreneurial firms?

“…Accordingly, OCM systematically overestimate the return on their projects, thus investing excessively in the presence of internal funds (since they are not disciplined by stock markets or constrained by corporate governance mechanisms (e.g. Salehi et al, 2023;Bui and Krajcs ak, 2023). This argument is consistent with Miglo and Brodziak (2019), in the sense that they analysed different scenarios regarding the efficiency of entrepreneurs' decisions.…”

“…Salehi et al. , 2023; Bui and Krajcsák, 2023). This argument is consistent with Miglo and Brodziak (2019), in the sense that they analysed different scenarios regarding the efficiency of entrepreneurs' decisions.…”

Sustainability Environmental Performance Future Investment for Company Value

“…This study uses a population of invoice companies listed on the Indonesia Stock Exchange during 2019-2022. The method used in this study to determine the sample is purposive sampling (Djojo, Astuti, and Trisakti, 2023;Ridhwan and Dwiati, 2022;Bui and Krajcsák, 2023).…”

Digital accounting system and its effect on corporate governance: An empirical investigation

“…The available search results provide some insights into the relationship between bookkeeping systems and CG. For example, a study found that good CG practices can positively contribute to a company's financial performance, which makes it crucial for investors to evaluate the quality of CG practices for each listed company so that investment risks can be limited (Bui & Krajcsák, 2023). Another study found that weak CG mechanisms are positively associated with high levels of accounting conservatism, implying that in weak civil law settings, such mechanisms can be used to mitigate agency problems (Nasr & Ntim, 2018).…”